Building Remote Teams

Misclassification in remote teams

Risks could arise with misclassification in remote teams when working with LATAM developers. Learn the differences between employees and contractors.


You've found the talent you were looking for, what should you focus on next? Setting up legalities for remote workers may be tricky and could lead to misclassification, which you should always stay attentive to.

Remote work has taken off during the last three years, and because of this, many companies started growing their tech teams with international developers. It has become the new norm regarding how companies broaden their talent networks.

However, one of the difficulties of hiring LATAM developers is the risk of legally misclassifying how they are a part of your company on paper. We will explore in this blog why it's essential to stay out of trouble by avoiding the misclassification of developers working remotely for you from LATAM.


Why does misclassification matter?

Misclassification happens when a company misclassifies an employee as an independent contractor. Each of these has specific perks the company must legally fulfill for them; not doing this may cause legal troubles for both your company and its developers.

The U.S. has different laws regarding contractors and employees, but one of the challenges of remote hiring is also complying with LATAM laws. Each country has unique laws, making it easy to slip up and misclassify developers when hiring.

If your company misclassifies one of its members, you could face fines, back taxes, and even legal trouble from governments or get sued by developers in your workforce. For the developer, it could mean losing some perks like health care or misunderstanding how they are a part of the company they are actively working for.


What's the difference between a contractor and an employee on paper?

In LATAM, significant criteria set employees apart from independent contractors; these vary depending on what country the developer is working from. Generally speaking, employees usually have more perks & legal protection than independent contractors.  

An employee is usually a developer working exclusively for your company who has scheduled working hours and receives monthly compensation for the fulfillment of their coding duties. Employees answer directly to their company and abide by its long-term goals.

An independent contractor is a developer who provides his coding skills for a company for different amounts of time. They get hired to work on a project until it reaches its final results. However, this could entail working on different projects all year round, giving way to a long-term relationship similar to an employee, but in most cases, without the same perks.

The main differences between employees and contractors are defined mainly by their relationship with a company, perks, and worker's tax. 


Your legal obligations when hiring employees in LATAM

- Employment Contract: You must provide a contract outlining the terms and conditions of your work relationship. Include the perks you are willing to offer to the employee.

- Tax and Social Security Contributions: When hiring a full-time employee, you must comply with taxation laws. Ensure you know what percentage of their compensation must be destined for tax purposes.

- Minimum Wage: Each LATAM country has a different minimum wage and currencies. Paying less could get you into trouble with the developer or the government.

- Working Hours: Full-time employees have a limit on how many hours they are required to work daily. It would be best to consider breaks in this schedule as well.

- Health and Safety: In some countries, you must offer a safe work environment to your full-time employees. They will even check if you have given your workers all the necessary equipment to do their jobs.

- Termination: When someone quits or gets fired, laws protect full-time employees with severance pay depending on the situation and location. You are also required to give a certain amount of notice time-wise.

- Non-discrimination: You must offer a healthy and empathic working environment where race, gender, or religion can discriminate against no one.


Your legal obligations when hiring contractors

Contract: You need a contract detailing the project's involvement and how long it will take to finish. 

Payment: In your contract, you should specify the amount you will pay the independent contractor and how it will be delivered.

Tax: Each contractor is not exempt from paying taxes in LATAM, and your company should provide a 1099 form for the developer.

Intellectual Property: Your company should specify who owns the work done by the contractor to make sure everything is evident on both parts.

Non-discrimination: You must offer a healthy and empathic working relationship where race, gender, or religion can be a cause for discrimination.

Avoiding misclassification in remote teams

When paying remote teams, it's important to shape a contract based on their local laws. Make sure you invest in legal representation or a consultant to help you navigate the legal framework of each LATAM country. 

Local legal consulting can also check or even help you write the perfect contract to ensure you can defend your relationship with the developer if they are an employee or an independent contractor.

Studying each of LATAM countries' labor laws will give you a sense of what your responsibilities are and which are not. Knowing which laws stand out from each country will also help you determine what perks you can offer in good faith and which are not your responsibility.


How does Awana help you avoid misclassification?

Our experience working alongside over 50 companies has shown us the ins and outs of hiring developers remotely, what sets each country apart, and even the most prominent skills in each one. The potential outweighs any obstacles those who don't have experience hiring in the region may be afraid to stumble upon.

Awana's technical recruiters can help you find, hire, and even onboard top tech candidates from Ecuador, Brazil, Mexico, and Colombia, unlocking your company's potential to meet its deadlines.

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